Is this President Bush's economic boom?

Dr Marc Faber
It is with utmost interest that I watch the usually very upbeat news on CNBC. In fact, Mr. Kudlow and Mr. Cramer are extremely fitting commentators for the current economic and political environment. We have a righteous, intolerant and belligerent third rate intellectual who lives in a big white house, runs the world's largest economic and military power, and who has surrounded himself by some very shady characters who are also because of their complete military incompetence, and lack of any knowledge of history and understanding of geopolitical conditions very dangerous. At the same time, we also have the pleasure to regularly watch two fast-talking and squeaky clowns in the CNBC circus who, for the last few years, have given their upbeat views on any economic, financial and political issues.

The 'know it all' duo's advice has not been particularly rewarding for investors, and had you invested your money according to their 'never in doubt' bullish mantra, your assets would be worth today at least 60% less than in 2000 (in terms of Euro or in a hard currency such as gold, they would be down in value by another 25%).

But since poor advice is not only endemic to the two relentlessly irritating CNBC financial commentators but is almost a prerequisite for success in the financial service industry, we shall not hold it against them. Still we have a question relating to a recent statement by Mr. Kudlow, which somewhat surprised us, since Mr. Kudlow is not exactly born yesterday although some of his views could lead one to believe so. In a recent article he explained why 'this Bush Boom is a lot like the Reagan Boom 20 Years Ago'.

Now, I have some reservations about this comparison for the following reasons. If you look at interest rates over the last 40 years or so, you will see that when, in 1980, Mr. Reagan became President of the US, rates were near their highs and since Mr. Volcker (then the Fed chairman) pursued at the time very tight monetary policies he managed to bring down the rate of inflation, and subsequently also interest rates, which then fell for the next 22 years.

Needless to say that whereas interest rates were sky high in 1980 and significantly above the rate of growth of nominal GDP, today the Fed Fund rate is significantly below the rate of nominal GDP, which suggests that short term interest rates can only rise if nominal GDP continues to expand, as Mr. Kudlow suggests with his 'Bush Boom' fantasy. The tight monetary policies of Mr. Volcker in the late 1970s and early 1980s were evident from the fact that short-term interest rates were pushed above nominal GDP growth and above long term interest rates.

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